Mahindra & Mahindra, India's largest utility vehicle maker, reported lower-than-expected quarterly earnings despite robust

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sales growth and said the economic outlook for the year was cautious, causing its shares to drop as much as 7 percent.

Mahindra, whose core business also involves selling tractors, said net profit on a standalone basis for July-September fell to 7.37 billion rupees ($146.9 million), compared with 7.58 billion rupees a year ago, largely due to a foreign exchange loss.

The profit was below an estimate of 7.84 billion rupees by Thomson Reuters SmartEstimate.

Net sales saw a sharp jump of 37.6 percent at 73.07 billion rupees in a difficult quarter for most automobile companies.

The company suffered a foreign exchange net loss of 320 million rupees due to the rupee's sharp fall towards the end of the September quarter due to which its overseas loans, largely due for repayment in 2016, had to be revalued, it said.

The rupee fell 8.8 percent against the dollar in the July-September quarter.

"The company could maintain its profits despite the relentless increase in material costs due to good volume performance by both vehicle and tractors in a difficult market and a tight control on expenses," it said in a statement.

Passenger utility vehicles sales, which includes Scorpio and the newly introduced XUV500, at 47,523 units, grew 14.2 percent.

Domestic tractor sales rose 28.2 percent in the reporting quarter at 54,585 units.

Tractor sales in India have risen thanks to a sharp jump in labour costs that have forced farmers to use machinery, as other commercial vehicles see the benefits of central and state government schemes to boost rural infrastructure.

Car sales are however under tremendous pressure. Overall car sales in India fell 23.8 percent in October, the biggest percentage drop since December 2000, on higher interest rates and vehicle costs and labour unrest at the country's dominant carmaker Maruti Suzuki, where sales fell by half.

Mahindra said business confidence in the country had weakened considerably this year due to the global macroeconomic environment, rising interst rates, volatile capital flows and exchange rates, high inflation and regulatory uncertainity.

Shares in Mahindra, valued over $10 billion, closed down 5.98 percent at 791.05 rupees, off a low of 782.20 rupees. The broader market closed down 0.43 percent.

Mahindra's shares are down 1.6 percent so far this year, compared with a nearly 12.5 percent drop in the sector index and a 16.5 percent fall in the main index.